USD/JPY – Yen Tests 103 as Japan Trade Balance Disappoints

The Japanese yen remains under pressure in Tuesday trading, as USD/JPY continues to test the 103 barrier in the European session. The yen got no help from Japanese Trade Balance, which posted a larger deficit than expected. The Bank of Japan held a policy meeting on Wednesday, and affirmed plans to double the monetary base within two years. In the US, all eyes will be on the Federal Reserve, as Bernard Bernanke testifies before a Congressional Committee and the Fed releases the minutes of its previous policy meeting. The US will release Existing Home Sales later in the day, the first key event of the week.

In Japan, Trade Balance was a disappointment, as it missed the estimate. The indicator posted yet another deficit, although it did narrow from JPY 0.92 trillion to JPY 0.76 trillion. However, this was well short of the estimate of JPY-0.63T. The plunging yen can take a lot of the blame for the poor reading, as the weak currency has resulted in the cost of imports rising dramatically. The government may have to reconsider its aggressive monetary easing program, which has greatly weakened the yen and could lead to larger trade deficits. Meanwhile, minutes of the Bank of Japan most recent policy meeting indicated that the BOJ was not making any changes to its monetary policy. The BOJ is moving ahead with its plan to expand the supply of money in the economy, and plans to pump in JPY60 – 70 trillion yen a year.

The Federal Reserve will be front page and center on Wednesday, as Fed Chairman Bernard Bernanke testifies before a Congressional committee and the Fed releases the minutes of the last FOMC meeting. The $64,000 question is whether the Fed will make any changes to its current round of quantitative easing, which involves the purchase of $85 billion in assets each month. There are signs that the Fed is mulling making a move, despite lukewarm US numbers of late. Last week, John Williams, president of the Federal Reserve Bank of San Francisco, stated that the Fed could begin reducing QE this summer and terminate bond buying late in 2013. As the QE program is dollar negative, any moves by the Fed to wind up QE could have a strong impact on the movement of USD/JPY.

US releases have not looked good lately, and last week’s numbers were, for the most part, disappointing. Inflation and manufacturing numbers fell below expectations, and housing data did not meet the forecast. Unemployment Claims had looked impressive in recent readings, but was well above expectations, pointing to weakness on the job front. There was better news from Building Permits, and the UoM Consumer Sentiment shot up to wrap up the week. Trying to determine the extent of the US recovery continues to be difficult, as the economy has yet to demonstrate sustained growth and produce continuous positive releases.

USD/JPY for Wednesday, May 22, 2013

USD/JPY 102.92 H: 102.99 L: 102.35  

USD/JPY Technical

 USD/JPY continues to trade close to the 103 level, as the proximate resistance and support levels (R1 and S1) remain in place. The pair faces strong resistance at 103.75. On the downside, the pair continues to receive support at 102.60. This is a weak line, and could face pressure if the yen shows any strength. This is followed by a stronger support level at 101.81.

• Current range: 102.60 to 103.75

  Further levels in both directions:

• Below: 102.60, 101.81, 100.54, 100 and 99.57
• Above: 103.75, 104.94, 105.87 and 106.55

 OANDA’s Open Positions Ratio

USD/JPY ratio is showing slight movement towards short positions. This is not reflected in the current movement of the pair, as the dollar has posted modest gains against the yen. The ratio is close to an even split between long and short positions, indicating that trader sentiment is closely split as to what to expect next from the pair. 

USD/JPY is again testing the 103 line, as the dollar puts pressure on the yen. Will the pair have enough momentum to push across this level?  With a key US housing release and news from the Federal Reserve on today’s schedule, we could see further volatility from USD/JPY.  

USD/JPY Fundamentals

• 3:07 Bank of Japan Monetary Policy Statement
• 7:24 Bank of Japan Press Conference
• 14:00 US Existing Home Sales. Estimate 4.99M
• 14:00 US Fed Chairman Bernard Bernanke testifies before Congress Joint Economic Committee
• 14:00 US Treasury Secretary Jack Lew Speaks
• 14:30 US Crude Oil Inventories. Estimate -0.4M
• 18:00 US FOMC Meeting Minutes

  *Key releases are highlighted in bold

*All release times are GMT  

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.